Navistar International Corporation (NAV) beat earnings per share (EPS) estimates on Sept. 4. The stock rebounded but remains below risky levels, and its weekly chart remains negative but oversold. The stock needs to break out above its "reversion to the mean" at $28.51 to regain technical momentum.

The maker of commercial trucks and buses as well as chassis for motor homes and step vans closed last week at $26.38, up just 1.7% year to date and in bull market territory at 23.7% above its Aug. 28 low of $21.32. The stock is also in bear market territory at 33.2% below its 2019 high of $39.52 set on March 4.

Navistar not only beat earnings estimates; it also confirmed full-year guidance. Some on Wall Street warn that trucking is in a slowing growth cycle due to slower global economic growth. The recent warning is that the ISM manufacturing index declined below 50, indicating shrinking factory production. Let's see what the charts say.

The daily chart for Navistar

Daily chart showing the share price performance of Navistar International Corporation (NAV)
Refinitiv XENITH

The daily chart for Navistar shows flip-flopping between "death cross" and "golden cross" formations, which favors a trading range environment. The question is: what's the low end of the range? We know that the stock hit a 52-week low of $21.32 on Aug. 28 before the Sept. 4 earnings report. The upside is to the 50-day and 200-day simple moving averages at $28.51 and $31.29, respectively, with semiannual and monthly risky levels at $34.39 and $36.37, respectively.

The weekly chart for Navistar  

Weekly chart showing the share price performance of Navistar International Corporation (NAV)
Refinitiv XENITH

The weekly chart for Navistar will become positive if the stock sees a continued positive earnings reaction. If the stock ends this week above its five-week modified moving average of $26.83 and above its 200-week simple moving average, or "reversion to the mean", at $28.51, the weekly chart will be positive.

This would be supported by a 12 x 3 x 3 weekly slow stochastic reading rising above the oversold threshold of 20.00. This reading ended last week at 17.17, which means that a rise above 20.00 would be positive. Helping the bullish case is that Navistar's P/E ratio is just 5.60, according to Macrotrends.

Trading strategy: Buy Navistar sahres on weakness to the Aug. 28 low of $21.32 and reduce holdings on strength to the semiannual risky level at $34.39.

How to use my value levels and risky levels: Value levels and risky levels are based upon the last nine weekly, monthly, quarterly, semiannual, and annual closes. The first set of levels was based upon the closes on Dec. 31. The original annual level remains in play. The weekly level changes each week. The monthly level changes at the end of each month, most recently on Aug. 30. The quarterly level was changed at the end of June.

My theory is that nine years of volatility between closes are enough to assume that all possible bullish or bearish events for the stock are factored in. To capture share price volatility, investors should buy shares on weakness to a value level and reduce holdings on strength to a risky level. A pivot is a value level or risky level that was violated within its time horizon. Pivots act as magnets that have a high probability of being tested again before their time horizon expires.

How to use 12 x 3 x 3 weekly slow stochastic readings: My choice of using 12 x 3 x 3 weekly slow stochastic readings was based upon backtesting many methods of reading share-price momentum with the objective of finding the combination that resulted in the fewest false signals. I did this following the stock market crash of 1987, so I have been happy with the results for more than 30 years.

The stochastic reading covers the last 12 weeks of highs, lows, and closes for the stock. There is a raw calculation of the differences between the highest high and lowest low versus the closes. These levels are modified to a fast reading and a slow reading, and I found that the slow reading worked the best.

The stochastic reading scales between 00.00 and 100.00, with readings above 80.00 considered overbought and readings below 20.00 considered oversold. Recently, I noted that stocks tend to peak and decline 10% to 20% and more shortly after a reading rises above 90.00, so I call that an "inflating parabolic bubble," as a bubble always pops. I also refer to a reading below 10.00 as "too cheap to ignore."

Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.